Pamela Wolfe, Managing Editor
Pinsent Masons’ Water Yearbook reports 15% to 20% growth in the global industrial outsourcing market and 15% growth for the desalination industry in the Middle East and North Africa. A few of its many industry insights have been distilled from the publication to give readers an idea of its wealth of information.
Desalination and industrial water outsourcing, the global water industry’s most dynamic sectors, continue to grow at a significantly healthy rate, according to Pinsent Masons’ seventh edition of its Water Yearbook 2005-2006, published last November. Private sector participation in major water concessions gained only slightly in the past year.
The Yearbook’s author, David Lloyd Owen of Envisager, reported that while the private sector is increasingly funding and operating large-scale desalination and power plants in Asia, Europe, Middle East, and the USA, it managed to achieve a net contract gain of nearly 21 million (population covered) in water concessions. “While this is a far cry from the halcyon years between 1997 and 2000, it represents a welcome return to resilience,” Owen explained.
Major water privatization contracts in Cochabamba, Bolivia and Dar es Salaam, Tanzania ended abruptly last year with continuing controversy for the parties involved. Despite the negative publicity, private sector involvement in the global water sector expanded in other regions last year. Owen reported that major contract awards in Russia, Algeria and India; continued growth in China; and numerous minor contracts in Portugal, the United Kingdom, and the USA account for the upturn.
Investment in the water sector continues to attract new regional and local players to the market. Once dominated by British and French water giants, the Yearbook notes the emergence of 13 new private sector companies from Morocco, France, Poland, Russian Federation, Estonia, and Sweden. More will be noted next year as more private equity investors are attracted by the steady cash flow of listed water and wastewater service companies.
Desalination remains a dynamic market. According to the Yearbook, market growth totals 15% in the Middle East and Northern Africa, and seven percent globally. Saudi Arabia plans to spend US$ 40 billion to increase water production capacity in desalination plants over the next 20 years. Water scarcity is also driving China, India, Spain, UK, USA, and many other countries to invest in desalination. Lower production costs have made this alternative water supply option more attractive than the conventional strategy of developing water supplies in arid, coastal areas.
For example, a city council in San Luis Obispo County in California asked consultants from the Wallace Group to weigh the options of participating in a water pipeline project and constructing a desalination facility. The consultant reported in early February 2006 that the desalination option would be half the cost of extending and maintaining the pipeline, and provide a steady water supply even through periods of drought. Not long ago, desalination was considered too expensive as a means to increase municipal water supply, except for the Middle East. Production costs may be reduced to as low as US$ 0.25 to 0.35 per cubic meter of water given current research and development of new technologies.
Not only water scarcity explains this current surge in desalination plant construction. The lack of clean water for coastal cities expanding in population and industry is driving the demand. Owen cites several examples in the Yearbook. In 2004, the Spanish government opted to increase desalination capacity instead of funding the North-South water diversion project. More recently, China plans to construct desalination plants on its eastern coast to solve the shortage of clean water for drinking and industry. More than 90% of China’s surface water is severely polluted. And the Indian government has committed to a series of build-own-transfer (BOT) projects on its southern coast, Owen reports.
The industrial water outsourcing market also offers great opportunities. Since 2001, this sector has been growing steadily at 15% to 20% in Europe and South East Asia. Why? Instead of establishing in-house treatment capability, industrial clients prefer to pay water and wastewater service companies to help them comply with environmental legislation and produce a reliable, clean water supply for industrial use. The USA share in this market dropped beginning in 2003, according to Owen, because of the “weak economy and deteriorating environmental standards.”
Yet, numerous large contracts are being awarded to a growing number of global and regional companies. In 2004 Veolia Water won a one-billion euro contract from PSA Peugeot Citroen in Eastern Europe, and two 900-million euro contracts in South East Asia. Singaporean companies, such as Sembcorp Utilities, Dayen, Darco, Eco Water, Hyflux, and Salcon, are also busy developing projects in China and South East Asia.
Once again, the Pinsent Masons’ Yearbook has proven to be a wealth of detailed information, invaluable to anyone interested in understanding the global water industry, its trends, emerging markets, and players. For more information, visit the website www.pinsentmasons.com.
